Bold Enough to Call A Top?
January 27, 2012
Well, I already made that mistake. 1.9% lower. Check out my post from last Tuesday.
But, 1.9% lower really isn’t that far. Especially if you consider all of the bearish indicators that currently reside on a sentiment and technical basis.
I use very few indicators. I am a strong believer in the linear regression of time and price. You know, mean-reversion, bell curves, simple overbought/oversold indicators. Simple, logical, intellectual and more importantly mathematically sound indicators that are the first step towards long-term trading success. Emotions are nonexistent. Time and price determine my parameters.
Basically, I apply statistical principles first and foremost. And the credit spreads I apply all have the probability of success edge. Combine the two, well, it is in my opinion, THE foundation for long-term trading success.
But I also believe in sentiment, especially on a short-term basis. While I never trade based solely on sentiment, it is certainly I filter or screen that I apply.
And now both are overwhelmingly bearish on a short to intermediate-term basis.
Short-term look no further than the High-Probability, Mean-Reversion Indicator below. All of the major indices remain in a short-term overbought to very overbought state. Couple that with almost every sentiment measure in a bearish state and yes, I remain bearish for the moment.
I think this chart by highly-acclaimed Sentiment analyst Jason Goepfert of Sentimentrader.com says it all.
Certainly, food for thought.
Remember, keep it simple, remain patient and allow opportunities to come to you. Once they do, apply statistically proven strategies like credit spreads. Use option theoreticals, like probability of success to make your final decisions. And of course, the final and most important piece, use position-sizing to effectively and other risk-management techniques to maintain order within your portfolio.
Apply all of these principles, like I do in my Theta Driver strategy and you will be well on your way to long-term success. It’s not easy, it shouldn’t be, but I can tell you that it is worth the effort. Allow yourself the independence of successfully managing a portion of your own wealth. Make your own decisions and make them with conviction.
If you haven’t already, don’t forget to sign-up for my :
High-Probability, Mean-Reversion Options Strategy : Free 30-day trial
Theta Driver Options Strategy (limited room available): Free 30-day trial
Also, for those of you who live on Facebook. You can access my info there as well. Just click on LIKE.
All it Takes is One Bad Trade
January 25, 2012
I came across a great article on the one bad trade syndrome. Several months ago, Slopers (Tim Knight’s Band of Followers), were privy to a real-life blow-up in which a trader essentially risked all of his trading capital on essentially one trade(disregarded the importance of position-sizing). I want to make sure that I never make the same mistake. Currently, my positions are teetering on max pain (stop-loss). My outlook remains with the pullback scenario that I have mentioned repeatedly the past few weeks – short-term bearish.
Check out the article - All it Takes is One Bad Trade
For those of you who have not been reading my posts the past several weeks, I have been reminding my loyal readers of the following:
For several weeks I have warned of the following: The Rally That Never Stops, Up, Up and Away, Not if History Has a Say and How to Recognize a Bear Market Rally
Don’t Be a Hero When Trading Options
Options trading seems to create a “get rick quick mentality” that attracts the “speculative gamblers” out there. To me this approach seems short-sighted, unless that is your goal and you are willing to take the risk. I prefer to take the “long-term” approach that attempts to beat the market over an extended period of time. Admittingly, I “go for the gold” sometimes and place a highly speculative trade. But those are few and far between and I would never allocate a large portion of my portfolio to a trade like this. It is just too risky for my blood after what I have experienced as a trader. Take the loss and move on. Think in terms of probablities. Use a scientific approach. Losses are a cost of doing business. It is how your account compares to the benchmarks after a long-period of time that defines your success. Any Joe options trader can make a bundle on a trade. It is how Joe performs over the long-term that defines his success.
If you haven’t already, don’t forget to sign-up for my :
High-Probability, Mean-Reversion Options Strategy : Free 30-day trial
Theta Driver Options Strategy (limited room available): Free 30-day trial
Also, for those of you who live on Facebook. You can access my info there as well. Just click on LIKE.
The Rally That Never Stops
January 23, 2012
What is there to say that I haven’t said already?
If you were not privy to the stats that I provided last week by the wonderful sentiment analyst Jason Goepfert of Sentimentrader.com here you go:
Starting around the 2nd week in January, stocks have had a consistent tendency to weaken. Or at least not show much strength. Especially technology.
I don’t want to hammer on this too much. Seasonality is a tertiary indicator at best, and can easily be overwhelmed by fundamental developments, technical breakouts and changes in sentiment.
The performance of various sectors since the day honoring Martin Luther King, Jr. became an exchange holiday in 1998. The performance of QQQ was positive only 1 out of 11 years into the end of the month.
He goes onto to provide a wonderful chart that shows sector performance after the MLK holiday and the Nasdaq 100 only has a 9%, yes 9% chance of closing higher than its price level before the holiday.
Furthermore, 24 of the indicators he follows are reading bearish, not a single one is bullish. Some of the indicators include Rydex Bull/Bear RSI Spread, Put/Call Ratio – OEX Open Interest Ratio, every Put/Call RAtio including Equity Only, Total of All Options, Equity Moving Averages, Liquidity Premium QQQ and SPY, AAII Sentiment Survey and the list goes on and on. So, I think you get the picture.
1/3 gap here we come?
Okay, so if the post-MLK meltdown is to occur we would need to see a move down below $58.18 or 2.7% in the Nasdaq 100 (QQQ) over the next six days.
We are still in the weakest period of January, but even that is coming to a close over the next few days.
Courtesy of Sentimentrader.com
And there are a few catalysts that could certainly help to bring this market lower over the next few days.
- Apple earnings due out tomorrow after close (1/24)
- For the first time ever, the Fed on Wednesday will release forecasts for the path of interest rates.
- GDP release Friday
It just feels as though the market is teetering. I get the sense that the bears are just waiting for the bulls to pile on in drives before we see what will be a fairly decent decline that closes the 1/3 gap. One thing is certain, we are in the most short-term overbought state that I have seen in years, so something has to give. Grinds higher typically lead to collapses lower. The problem is knowing when the grind ends. I think the time is near.
If you haven’t already, don’t forget to sign-up for my :
High-Probability, Mean-Reversion Options Strategy : Free 30-day trial
Theta Driver Options Strategy (limited room available): Free 30-day trial
Also, for those of you who live on Facebook. You can access my info there as well. Just click on LIKE.
